Is Illumina Still The Gamechanger In Genomic Sequencing?

 | Oct 05, 2022 03:37AM ET

Genome sequencing solutions company Illumina (NASDAQ:ILMN) stock has fallen under its pandemic lows. A surprise earnings miss, and lowered guidance has caused shares to spiral down (-49%) for the year. The Company leads the market with its next-generation genome sequencing systems and analysis tools. It has a 90% market share of the global sequencing market with over 17,000 active sequencing machines installed throughout 115 countries. The cost of DNA sequencing has fallen from $100 million per human genome in 2001 to less than $600 today. Illumina’s machines accelerate the advancement of precision medicine applications. While demand was still robust, the macroeconomic uncertainty has caused many of its clients to hold less inventory and delay orders to preserve capital. Molecular diagnostics providers are a key growth driver for the Company. Rising interest rates are having a material impact on Illumina as its customers tend to be rate sensitive causing them to scale back purchases and expenses to preserve precious capital. Some of its clients include Natera (NASDAQ:NTRA), Exact Sciences (NASDAQ:EXAS), Invitae (NYSE:NVTA), and Myriad Genetics (NASDAQ:MYGN) in addition to clinical labs, pharmaceutical companies, academic institutions, healthcare systems, and hospitals. FX headwinds and supply chain disruptions have had a direct impact on its top and bottom lines. The Company expects the effects to reverberate for the near-term future.h2 The Grail Acquisition Dilemma/h2

Illumina was challenged by the Federal Trade Commission (FTC) and the European Commission (EC) on its completed $7.8 billion acquisition of GRAIL, a cancer test maker, over antitrust concerns. GRAIL developed Galleri, a blood test that can detect over 50 types of cancers from one blood draw. It’s a powerful early detection tool with a low false-positive and false-negative rate. Most blood tests on the market only detect five types of cancers. Early detection is the first line of preventative care as cancer risk rises with age. It partnered with Fountain Health Insurance to offer Galleri as part of annual wellness benefits. GRAIL partnered with AstraZeneca (NASDAQ:AZN) to develop companion diagnostic tests to identify high-risk and early stage patients for novel therapies. On Sept. 1, 2022, Illumina won a lawsuit brought by the FTC to unwind the merger. The FTC plans to appeal the decision. Riding the momentum of this court ruling, Illumina plans to appeal the EC’s decision to prohibit the merger. Rumor is that Illumina is in talks with EU antitrust officials over plans to divest GRAIL.

h2 Earnings Shock/h2

On Aug. 11, 2021, Illumina released its fiscal second-quarter 2021 results for the quarter ending June 2022. The Company reported non-GAAP earnings-per-share (EPS) profit of $0.57 versus $0.64 consensus analyst estimates, a (-$0.07) miss. Diluted GAAP EPS was (-$3.40) which included $609 million in legal contingencies. The Company saw revenues grow 3.2% year-over-year (YoY) to $1.16 billion missing analyst estimates for $1.22 billion. Illumina CEO Francis deSouza commented:

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"Our second quarter results did not meet our expectations as challenges in a complex macroeconomic environment more than offset the growth we continue to see in sequencing runs on our platforms. As we strategically navigate these dynamics, we continue to advance our innovation roadmap in support of our long-term growth trajectory. At our upcoming Illumina Genomics Forum and Investor Day events, we look forward to showcasing our breakthrough technologies that demonstrate the power and potential of genomics."